For any technical trader looking to gain a deeper understanding of how to read forex charts in general, learning to read candlestick charts is a great starting point. In the 18th century, Candlestick charts were invented and created, as you may already know. The beginning reference to a candlestick pattern used in financial markets was invented in Sakata, Japan, where something similar to a modern candlestick was used by a rice merchant named Munehisa Homma to trade in the Ojima rice market in the Osaka area.
While bar charts and line charts were very common among Western traders, in the early 1990s, a Chartered Market Technician (CMT) named Steve Nison introduced Japanese Candlestick charts and additional trends to the Western financial markets. Due to its extremely detailed predictive characteristics, the popularity of Candlestick charts has risen among Western market analysts over the last few decades. Candlestick charts can play a crucial role in the financial markets’ better understanding of price action and order flow.
You need to grasp the basic structure of a single candle on the candlestick chart. For a given time span, each Candlestick contributes; it may be 5min, 1H, Daily, Weekly, etc. A Candlestick represents four distinct values on a chart, regardless of the time period.
- The opening price
- The closing price
- The highest price
- The lowest price
When you read a candle, it will give you information on whether the session ended bullish or bearish, depending on the opening and closing prices. Bullish Candlestick when the closing price is greater than the opening price. By contrast, Bearish Candlestick when the closing price is lower than the opening price. And during the time period, the upper and lower shadows of the Candlestick represent the highest and lowest cost.
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